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6: What Do I Trade?

The business need for futures contracts

I trade grains futures contracts – soybeans, wheat and corn. There are other grain futures, but they don’t trade with enough volume to interest me.

Like all commodities, grains have a cash price at which they can be bought and sold on the open market. The trouble is it is volatile. Storms, droughts, government decisions, wars – all can, and do, cause large price fluctuations.

Farmers who grow grains, and commercial enterprises that use grains as raw materials, realised long ago that they needed a better pricing mechanism to manage their businesses. Just relying on the current cash price left them too exposed to unexpected price movements. They needed to know, in advance, what ...

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